In stead of considering one 'market' as a homogeneous blob .. isn't it useful to think about the fractal structure of towns, local areas, provinces, countries, each with local specialisations. Is the USA of states, or an EU of countries actually an improvement over one big single market without the competing subdivisions? And also more robust .. as an ecosystem of smaller ecosystems, each slightly different?

It is not about trade, it's about redistribution! If France only included Paris, or the US only the East Coast, they would be among the richest in the world (per ca) but they redistribute vast sums to the hinterland. Belgium, on the other hand, is akeen to a huge town with a few fields within it. Or to take an extreme example: Singapour is richer than almost all countries. Today, in a largely free trading world, wealth is manufactured in cities. The hinterland is what keeps a country poorer than it would otherwise be. This, of course, only works as long as the big countries continue to secure the infrastructure for global free trade (eg, securing trading routes ...).

This is a good antidote to those on the right who take the so called economic high ground by preaching about regulation and tax cuts whilst also preaching against immigration and economic equalisation.

The message is, you have a view and you are adopting economics policy to defend it. If you really were an economic conservative you would believe in all of those things and support policies appropriately.

"Econ 101 lecturers love to tell students about poor Robinson Crusoe, stuck doing everything on his own on a deserted island until a second person is introduced, to the same island. Here we understand that it isn't trade that is important so much as market size"

Ah, but supposing instead of a second person, a robot is introduced doing all the work and consuming the gains from the work, leaving poor Robinson Crusoe to live off the scraps. the Market size may have improved, but what of Robinson Crusoe's market share?

Ryan Avent’s conception of the human condition is so bleak and narrow-minded, and his defence of free trade is so timid, it gives Economics a bad name.

In this piece Mr Avent presents us with a case for free trade only insofar as it pertains to one tiny, narrow aspect of human existence: “production”.

The “Church of Growth” (for which Mr Avent seems to be a spokesman) is not Economics. It is a religious enterprise that uses economics in a theological way to lend an air of superiority to its essentially religious beliefs.

As with many fundamentalist religions, the narrow-mindedness of the Church is cloaked in layers of sanctimoniousness self-righteousness. Apparently, it never occurs to the Faithful that there might be aspects of human existence other than endlessly increasing the amount of “stuff” (goods and services) the human race produces.

In the belief system of the Church – so it would seem - the object and purpose of human existence is to produce as much stuff as possible. The goal of “Labour Camp Earth” is to maximise output. That is why the universe was created. That is why life evolved.

Of course, for people not constrained to living within this ping-pong ball of dogma, such a belief system if not only tragically and pathetically bleak and narrow-minded. It is also an insult to Economics.

Economics is not limited to working out how to increase the output of stuff as an end in itself. It is a far broader and more subtle discipline. This very year we saw the Nobel Prize awarded to two economists whose conception of the human condition was clearly broader than Mr Avent’s.

So in what particulars does the Church of Growth fail?

First, there is surprising little evidence that the production of stuff is of importance to human beings themselves, and still less evidence that it is of primary importance to them.

Rather, there is considerable evidence that beyond a certain level of subsistence, human well-being depends more on relative status than on absolute wealth. For example:

a) the relationship between self-reported happiness and per capita income by country is logarithmic. In other words, there are rapidly decreasing self-reported happiness returns to income. [Incidentally, if Ryan Avent wished to make a sound case for freedom of migration he might be better to start with this observation rather than arguing for increased output. But I suppose once a member of the Church, always a member of the Church]. Moreover, even the increase in self-reported happiness which is correlated with per capita income is not demonstrated to be caused by it. It is just as plausible that it arises from lower status gradients within wealthier countries arising from various institutions that promote equality;

b) there are, for example, studies such as those of Harvard University students (discussed in The Economisthere) in which people openly profess to prefer a world in which they earn $50,000 while their peers are on only $25,000 to a world in which they earn $100,000 while their peers get more than double that amount;

c) there are the findings of Richard Wilkinson on health and longevity (also discussed in The Economist, here “that once economic growth has lifted a country out of penury, its inhabitants are likely to live longer, healthier lives if there are not huge differences between their incomes”; and

d) there are the findings of Michael Marmot (see previous link) “that those at the bottom of social hierarchies have worse health than those at the top—even when all other variables are statistically eliminated, including the fact that those who are healthier are more likely to rise to the top in the first place”.

It is easy to see how one might confuse the effects of growth and relative status. It is a Fallacy of Composition. Individually, people may perceive themselves to made “better off” by an increase in their absolute wealth and their ownership of stuff, because individually it raises their relative status. But that improvement cannot be generalised. Collectively they are involved in an arms race in which it is impossible for everyone to improve their lot through growth.

And if that arms race imposes other costs (possibly intangible costs), then the case for promoting growth as an end in itself - which the Church accepts as an Article of Faith - is unfounded.

To quote another Nobel laureate with a broader conception of human existence, “ . . . what are traded on the market are not, as is often supposed by economists, physical entities but the rights to perform certain actions.”

Such trade may involve no goods and services at all! Indeed, it need not even involve “property” in the normal sense!!

Those with a broader experience of the world might be familiar with corporations law in which it is common to separate the share market into two quite distinct components:

a) the market for entitlements to the underlying income and assets of a company (i.e. the rights to dividends and capital on winding up); and

b) the market for “control” (i.e. for the votes necessary to exercise effective control over the way in which that income and those assets are used).

It is possible in principle (and it happens in practice) that control may be “bought” and “sold” (i.e. the votes which give control are bought or sold) without the corresponding entitlement to the underlying income and assets being transferred. Takeovers law generally seeks to regulate the degree to which the two markets are allowed to diverge. Depending on the jurisdiction, it may require anyone who acquires effective control (variously defined as between 15% and 75% of votes depending on circumstances) to acquire also the entitlements to underlying income and assets.

Once we step outside the narrow strictures of the Church Of Growth and consider the trade in rights in the broadest sense, we see that the greatest impediments to “free trade” lie not in the production of stuff but in markets for control.

What’s more, the promotion of “free trade” in those markets could well lead to outcomes that would horrify the self-righteous clergy, committed as they are to the bleak and narrow goal of maximising “production”.

Far and away the greatest impediments to “free trade” are those concerned with the control of polities.

First, within all but a handful of polities, effective control is exercised by a tiny - but heavily entrenched - elite of politicians who monopolise all legislation. Even if there is voting, it is only between members of the oligopoly of political parties.

As with most impediments to trade, this situation is held in place by Prisoners’ Dilemma. (It is a “metastable” state. In the absence of transaction costs and the anti-catalytic effects of Prisoners’ Dilemma, other players in the game would negotiate to reduce it to its true equilibrium state.)

On the rare occasions that historical circumstances have conspired to allow people a free choice in how they want their polity controlled, they have - almost without exception – chosen to abolish the politicians’ monopoly in favour of Democracy. And where people have direct democratic control, they do not use that control to reinstate the politicians’ monopoly.

In light of this, the maintenance of politicians’ oligopolies for decades - centuries even - in non-democratic polities testifies to high barriers to trade in the intra-polity market for control.

But intra-polity trade barriers are small compared with inter-polity barriers. Across the planet, polities are organised into regional monopolies with no legal means to introduce competition.

If we’re going to talk about free trade, let’s try to imagine a bizarre world in which all economic activity was required to be conducted by 200 prescribed companies, a bizarre world in which it was illegal to incorporate a new company, a bizarre world where the penalty for attempting to do so was life imprisonment or death.

Now, that’s a trade barrier!!

And yet, that is precisely how the market for control of polities is organised.

If we’re going to talk about free trade, let’s talk about free trade where it really counts. Not in the production of “stuff” which arguably has little impact on human happiness, but in the polity market which does.

Of course, if ever the market for control were liberalised (“liberalised” in the sense of freed from transaction cost barriers held in place by Prisoners’ Dilemma) there is no guarantee that people would agree with the Church’s blinkered view of human purpose.

They might agree with the Church. But given the opportunity to exercise greater control over their lives, people might place priority on things other than maximising production. They might place greater priority on intangibles like “community” or ”ambiance”, all those things the clergy find incomprehensible.

Perhaps that is why the bishops want to restrict the debate on free trade to such narrow terms.

It is worth clarifying that while country averages for self-reported happiness reveal a broad tendency for sharply diminishing marginal returns to income, self-reported happiness averages are not cardinal measures of preference.

As explained on other occasions, there is no method – not even an in-principle method – of assigning cardinal numbers to preferences in such as way as to allow the preferences of one individual to be compared with those of another individual using the rules of cardinal arithmetic. One person’s liking of oranges cannot be expressed as being greater than, less than, or equal to another person’s dislike of aircraft noise.

Self-reported happiness results do not differentiate between:

a) variations in levels of putative “true happiness” between individuals; and

b) variations between individuals in the way they report their putative “true happiness”.

Thus, even with self-reported happiness measures, cardinal preference remain not just a hidden variable, but an undiscoverable variable. Some people may wish to attribute an objective reality to it (in the same way that some people attribute an objective reality to God), but that is purely theological.

There are some crucial issues facing the world right now that concern international trade; pity none of them are mentioned in the piece, but you see - they don't fit with RA's version of PC, so, .... This next part is so cool -

"... a false distinction: that there is something qualitatively different about trade across borders and trade within borders."

Right - tell that to the Greeks and the Germans.

Tell me true - Are TE's bloggers getting more 'Alice In Wonderland' with each passing week?

The truth is its either growth as we know it, growth with a different spread of benefits to constituents, or redistribution. And i'm sure Fox would object to redistribution. R.A. is talking about where the benefits go.

Good stuff. Now it's time to try and facilitate homogenisation (in areas where this is plausible) with New Zealand, Hong Kong, Singapore, Japan, Canada, the US, EU, etc.

A bigger market with fewer borders can absorb far higher fixed costs in development of new technologies & products, and facilitates far faster spread of productivity-boosting innovations across producers & consumers.

Legal convergence, taxation convergence (in structure & payment mechanisms if not in rates), product standards convergence, etc is all good for growth and prosperity. Of course, regulation has to be appropriate (and eliminated where gains are not clear). But where it does exist, it should seek to minimise effective borders and require minimum attention or administration-burden from businesses or consumers.

Expanding the market through immigration is rather like trying to get the mountain to vist Mahomet. There's 7 billion people on this planet. How many can we let in? And whatever gain we get from accepting enterprising souls from backward places we lose when these places fall into decay and decadence in their absence. Rather than to wait for the market to come to us, we should go out and create markets oversea. Half of the world's population live much like peasants in feudal Japan, kept poor and ignorant by modern-day shoguns. The benefits of opening up these closed-off markets would be enormous, both to ourselves and the inhabitants there.

The core of progress really has to be in an extension of good institutions - of courts, law enforcement, contract enforcement, stable currencies, financial institutions, public education, public health, etc.

That is the basis of the ability of businesses to invest in capital at all, to expand, to adopt modern capital equipment & achieve high productivity, trade with the world, end deep poverty, incrementally build up quality infrastructure and eventually achieve prosperity.

Free trade matters - good institutions matter even more.

The sad thing is that good institutions have rarely spread far across borders in the past (and even today, adoption of an Irish tax system or German healthcare system is frustratingly slow among developed countries).

Perhaps that is now changing - a shift to online financial markets potentially opens access to finance for the world. If rich countries open online courts and build electronic currency system, those software-based institutions would be far more portable to second countries than existing systems which are embedded in vast armies of civil servants & traditions. Taxation APIs for VAT, housing tax and income tax will change everything - and spread rapidly worldwide.

New technology & software-embedding, within 20 years, will facilitate the easy and rapid adoption of the world's best institutions even for lower income countries - perhaps allowing some of the rapid convergence in factor returns that Economists generally hope for.

We can only hope - and start to build the portable freedom-enhancing, productivity-boosting, software-based public sector platforms & institutions that we wish for humanity.

Also add "streamlining regulation" to the list of recommendations. I don't mean just federal regulations. The article mentions state licensing, which is one often egregious example.

And I don't (for the most part) mean that we become less regulated - that things once prohibited become allowed. I mean that the regulations become simpler and clearer, so that I don't have to hire multiple full-time people to determine whether I'm compliant or not.

A principle that should be obvious - it's frustrating beyond tolerance to have a conversation with a petty bureaucrat (conviction that rules are appropriate, with no communication mechanism for feedback on rules, and yet unclear themselves in their understanding & communication of what rules require).

A majority of court cases arise because the law is so full of (tens of thousands of pages of) ambiguities, contradictions, absurdities and complexity that nobody can work out what the legally appropriate decisions really are.

If the whole point of laws is to change behaviour and decisions, then there is absolutely nothing to be gained in drafting a law and then failing to communicate it effectively (e.g. keeping the core law to several pages, uploading videos & tutorials describing what the law means, what metrics are used, what evidence would be appropriate, what actions would be required in what contexts, what penalties would be appropriate and a few examples of hypothetical cases).

All laws & regulations should also seek to achieve well defined behaviour or outcome objectives - so these should be stated, with support for online feedback, data & evidence (and well defined metrics) to test whether those objectives really are being met, whether there is potential to modify the law for better outcomes or whether technology/ shifting social norms/ product innovation/ new insight have made the law obsolete & in need of striking-off.

And obviously, the volume of laws should be kept to a minimum, and there ought to be joint legislation across states and nations to minimise the barriers to trade and achieve greater effective market size, productivity and potential for growth.

The difficulty is that, as you say, the majority of court cases arise from that lack of clarity in the law. Who benefits from that? People in the one profession that both works on court cases and makes up the substantial majority of those who are in the legislature writing the law. "Conflict of interest" is putting it mildly.

In much the manner that positive discrimination has often been practised to redress gender imbalance, perhaps we should have active discrimination to reduce the concentration of lawyers among legislators?

Clearly, some lawyers/judges/etc is useful for adding experience & professional insight. But conflict of interest as you illustrate mean that vested interests and obstacle to reform are presently insurmountable - a certainly intolerable situation which surely merits a kull of lawyers in Congress/ Parliament.

The American retirement age isn't all that low. Also, most of the recent gains in life expectancy have happened for those above the poverty line, so increasing the retirement age means most poor people would never be able to retire since they die in their late sixties. And generally people aren't productive workers in the years immediately before their (natural) death anyway.

hopefully, now that poor people can receive civilized levels of health care, their life expectancy will move up.
If the article is about a bigger pie making everyone richer, and we assume that people only contribute to the economy while they are part of the labor force (obviously not true, but this is some napkin math):
A person that graduates & gets a job at 23, and retires at 65, works for 42 years. If they retired at 70, they would work for 47 years, expanding the size of the workforce by 11.9%. They would also be the most skilled, knowledgeable workers, so their economic contribution would probably be greater than 12%.
You could probably also shave a bachelor's degree down to three years without losing much, which would get you another year in the workforce.

Under current conditions, what you're going to do is raise the number of unemployed. The old can't afford to retire, and the young can't find jobs. These are not entirely unrelated phenomena.

Shaving a bachelor's degree down to three years? You can do that now, and have been able to for years, via the CLEP tests - but only if you learned something in high school. If college has to teach you what you should have learned in high school, there's no way you can do it in three years.

But if you are designing for the future, you probably shouldn't assume tht current economic conditions, specifically employment/unemployment, are going to persist. Or, if you are going to make that assumption, you need to come up with an explanation for why they will do so -- if only so you can change it.

Not true - life expectancy is rising faster (from a lower base) for lower income deciles than for higher income deciles.

Improvement would be more impressive if more action were taken on extending access to basic healthcare, improving diets, improving activity levels, eliminating smoking, cutting vehicle emissions, achieving higher vaccination levels, etc. Yet, rich people already lived quite long, and a slightly disproportionate share of rising life expectancies has been carried by lower income deciles.

If an increase in retirement age causes people to work 5 years longer on average, that would increase the trend workforce by 12.5%. That's impressive - with a homogeneous workforce, that would imply around 12.5% more output in the steady state. And by creating a larger market, this would absorb the fixed costs of higher investment levels and higher R&D burdens, for faster trend growth.

And again contrary to what you say, older workers are in fact more productive than average workers (productivity begins to fall in older age, but typically remains far above the levels of workers in their 20s, 30s & early 40s). Older workers do however often prefer to work fewer hours - so a higher retirement age probably wouldn't achieve the 12.5% expansion suggested above.

The gains in GDP and trend growth would be fantastic - speaking for the younger generation, I want to see retirement ages rise rapidly (to 70 or so within a few years) & radical reduction of gerontocratic rent seeking. We're living so much longer and staying so much fitter - now allow us to benefit from that and build a better world.

The tax funds that are today wasted on idleness of the chiefs could instead be invested in good education for the masses, better infrastructure, R&D, poverty alleviation, etc. The older generations have to stop screwing humanity.

This is something that varies internationally then. Throughout Western Europe, a disproportionate share of rising life expectancy has come from the lower income deciles.

The best gift to poorer people isn't comfortable idleness in final years - it's better investment in education, vocational training, and lower tax on the capital investment that lifts productivity, employment & wages.

Large transfers to old people, public employees and the military are the three items by which government most exacerbates inequality and poverty. With less spending in each of these areas, government can easily afford lower tax on capital investments, higher investment in the human capital of the disadvantaged and adequate income transfers to those most in need.

It isn't about Liberal or Republican - it's about making sensible trade-offs in pursuit of high productivity & egalitarian prosperity.